Good morning SOTGC readers. Do you have an emergency fund….?
Life throws things at you when you least expect it. In the past couple months I’ve had to buy a new car, had a dog diagnosed with a chronic disease, had a teenaged child make a few poor and expensive decisions, and a husband who wound up in the hospital from a freak accident. All this adds up to quite of bit of unexpected expenses, and in my opinion, completely underscores the need for an emergency fund.
I am a huge fan of preparing for the future, which also means the unexpected. At 48 years old, I have finally learned that life just isn’t like Leave It To Beaver. (Google that if you’re under 40) So, stuff happens. If you have prepared by saving some money, the emergencies are much more manageable. How much do you need? There are a million opinions on how much you should have stashed away for emergencies, where to keep it, and how to invest it.
I like to keep it simple and I suggest taking at look at what six months of expenses costs you. From your mortgage or rent to groceries, and everything in between, I estimate the cost and then put this money aside. Since this is emergency money that you might need as soon as an emergency happens, I think keeping this money in a savings account is a perfect place. You will earn next to nothing on the money, but it will be there if you need it. If you don’t have money set aside now, I would determine what your Emergency Fund should be, and start saving. You can put aside an amount every pay period until you reach your goal. Once you’ve saved what you believe is the right amount for you, leave the money where it is until you need it. If you have to spend it down for an emergency, when you are back on your feet, replenish it as you can. This is money that is truly set aside for the unexpected. I find that if you make it hard to get to, you are less tempted to spend it on non-emergencies. Some of my clients keep their emergency funds in accounts that are just a bit harder to get to than the local bank, purely so that they are not tempted to spend it on an impulse buy.
I have to tell you that in the past year I’ve had a few different clients use these Emergency funds. It made the difference for them between paying their bills and going into debt. I’ve had clients lose jobs, get divorced, and have family health emergencies, none of which was expected. Having money set aside for the unknown has truly helped them maintain their quality of life when it seems that everything is falling apart.
So, unless you are living the Leave It To Beaver life, (and if that’s the case, I want to know you), think about saving some money for a rainy day. You’ll be glad you did.